- Software project estimation is the process of predicting the time, resources, and budget you need for your software development project. A project team makes estimates at the beginning of a project, taking into account the project’s scope, existing limitations, and risks.
- You can use various techniques to estimate a software project. Some of the most common are top-down, bottom-up, analogy-based, three-point, PERT (project evaluation and review technique), expert judgment, and parametric estimating.
- Involving software developers and other specialists who will work on your project in the estimation process is a great practice. They can provide realistic estimates of the time and resources required for your project, as they have development experience and know their skills and limitations better than anyone else.
Software project estimation has a direct impact on development success. Realistic estimates help to mitigate risks, make the development process smooth and consistent, and greatly increase the chances of delivering a project on time and within budget. Uncertain and inaccurate estimates, on the contrary, can turn your project into a mess, leading to failure due to a lack of resources or missed deadlines.
But how can you ensure your estimates are accurate?
We are here to guide you on proven ways to plan resources for your project’s execution. Let’s dive in and explore in detail what you should estimate before starting software development and how you can do it.
Everything you need to know about software project estimation
Let’s start by answering a simple question: What is software project estimation?
Software project estimation is a process that takes place at the very beginning of a project. It is an integral part of project planning, during which your team answers these questions:
- What activities does project development require?
- How much time will it take to finish all project activities?
- What resources are required?
- How much will the project cost?
In other words, estimation involves predicting the time, resources, and budget to execute all project activities and deliver the desired result.
Types of project estimates
What should you estimate for your project? Software development is complex, and you need to consider a lot of dependencies, limitations, and requirements. However, we can distinguish three main elements to estimate:
- Resources — Show how many specialists, how much equipment, and how many other resources you need to complete the project. Resource estimation is necessary to understand what your software development team structure should be, what specialists with what skills and expertise you need, and what equipment (testing devices, subscriptions for development tools and services, etc.) they need.
- Time — Show how long it will take to complete each task within the project (or the entire project). Resources and time collectively represent the effort needed to finish your project, i.e., how many specialists will work on your app and how much time it will take them. Thus, the software development timeline depends on your team size.
- Cost — Show what budget you need for your project. The role of cost estimation in software development projects is crucial for avoiding budget overruns. You need to estimate it only after assessing the needed resources and time (with your funding limits in mind, of course) to ensure your budget forecast is as realistic as possible.
The estimates above are those you’ll focus on during the estimation process. But to ensure your project development isn’t rushed and doesn’t face unexpected obstacles, you also need to define the scope of work, predict risks, and take into account all limitations, such as budget and time.
As you can see, there are a lot of things to consider during software project estimation. You might be a bit confused about how to organize this process. So let’s go through the estimation stages.
Project estimation lifecycle
Estimating a project involves many activities. We can divide them into three main stages:
- Preparation. You can’t just sit down and start to estimate without knowing something about a project. The more information you have, the more accurate the estimates you can make. That’s why you need the preparation stage, which involves defining the scope of work; decomposing software elements through a work breakdown structure (WBS); defining budget, time, and resource constraints; identifying potential risks; choosing an estimation technique; and deciding on the team to perform the estimate.
- Estimation. With enough information, your team can start estimating the project. This process will look different depending on the technique you choose. We’ll explain the most effective software project estimation techniques in more detail later.
- Improvement. After work on your project starts, there can be changes in the scope or requirements. To ensure your estimates stay realistic, your team needs to review and refine them from time to time. Changes are especially common for agile project management.
We know that this process can take longer than expected. But in most cases, fast estimation will lead you to failure. So don’t neglect the preparation stage, and make sure to revise and improve your estimates throughout the entire project lifecycle.
Who estimates a software project?
The first specialist who comes to mind when you think of project estimation is probably a project manager. Their responsibilities include managing the estimation process, documenting estimates, and ensuring their integrity.
However, we believe that for accurate project estimating, it is essential to involve specialists who have a technical background and will work on your project. Why do you need them on your estimation team? Because they know their capabilities better than anyone else. They can assess the scope of work and tell you how much time and effort they really need to invest in designing, developing, testing, and integrating each piece of software functionality. Without their feedback, your estimates can be inaccurate, so be sure to make technical specialists a part of your estimation team.
You can estimate your project with your team if you plan to develop in-house. However, if you don’t have enough expertise or an in-house team, choosing a software development outsourcing company is the optimal solution. You can hire a software delivery team who will estimate your project, approve estimates with your C-suite executives, and develop your app from scratch.
Before we move to project estimation techniques in software engineering, you also need to understand how this process protects you from failure.
Why project estimation matters
Imagine you decided to implement a new software solution for your business. It’s supposed to benefit your customers and give you an edge over your competitors. But when the software goes live, something goes wrong, and as a result… you lose $440 million.
Sounds like a nightmare for any CEO, doesn’t it?
It is actually the real story of Knight Capital, a former leading financial services firm that in 2012 decided to implement a new automated trading solution to stay competitive. The firm’s top management was so focused on delivering a solution as soon as possible that it set tight deadlines without thoroughly estimating the time and effort needed for developing software. They neglected many critical aspects of software development, including proper testing. As a result, the new solution was launched with defective code that caused the unintended purchase of stocks that cost the company $440 million.
This and many other projects could have ended better if companies had paid more attention to IT project estimation. Let’s take a look at how exactly thorough estimation can benefit your project.
Reduce budget overruns
You probably have some funding constraints and expect your project to align with them. But without estimating your project, you won’t know exactly how much your app development will cost. Estimates give you a clear picture of investments you need to make to get the desired result. Moreover, with thorough software project cost estimation, you are likely to reduce software development costs. This is almost impossible to do if you just make an estimate based on your subjective opinion.
Prove project feasibility
Estimates are an important part of a feasibility study — a process during which you find out if your idea is worth the investment and if it’s actually possible to develop what you want. While you can prove technical feasibility through a proof of concept, estimation of software projects gives you an understanding of your chances to get ROI from developing your app. When you predict necessary investments and compare them with expected results, you can consider whether your idea is reasonable.
Set realistic expectations at the beginning
You may expect that building a minimum viable product (MVP) will take only a couple of months and then be confused when your team misses all deadlines. Software project estimation helps to avoid false hope for quick and cheap development, instead giving you realistic numbers and therefore setting realistic expectations of what can be done with available resources and how much time it will take.
Get a clear picture of the work to be done
Estimation in project management is an important part of the project discovery phase. When estimating, you usually break your project into small tasks and assess each one individually, planning how much time it will take and who will work on it. As a result, you get a clear understanding of what amount of work should be done and how many resources and what time you need to cope with your project.
There are always risks when you develop something. To succeed, you need to put effort into assessing possible risks and finding a way to reduce their impact on your project.
How can estimating be helpful in mitigating risks? While making estimates, you can take into account various development scenarios, create a buffer for unexpected changes, and therefore protect your project and team from delays, rework, or total failure.
Project estimation techniques: How to make accurate estimates
You already know what you need to estimate, what the estimation process involves, and why it is essential for your project. Now, it’s time to find out how to estimate projects.
There are numerous estimating techniques in project management. Some are suitable for small projects or those that have vague requirements; others are useful for estimating complex projects. We won’t tell you about all of them. Instead, we will focus on the most common and effective. Let’s take a look at some estimation techniques and find out when they can be useful.
According to the top-down technique, you first estimate the entire scope of work and then split it into small tasks and define how much time and other resources each task requires.
When should you choose the top-down estimation technique? When you have time, budget, or resource constraints. Using this technique, you can find a way to develop your project within a specified timeframe or with limited resources. It is also one of the agile project management estimation techniques that allow you to continuously improve your estimates.
Bottom-up estimating is one of the project estimation techniques that focuses on splitting a project into bite-sized elements and evaluating them individually. To use this method, you need to create a work breakdown structure first and then make resource estimates for each activity, defining how many people will work on this activity, how much time it will take, and how much it will cost.
This method is popular because of its simplicity and effectiveness. Project managers often use bottom-up estimating when building a project according to the Waterfall methodology, as the bottom-up technique allows them to predict all elements at the beginning of a project. However, you can use this estimation technique for an Agile project as well, especially if you need to calculate an approximate cost and project duration in the early startup phases.
The analogy-based method is simple: your team gathers data about previous projects with similar requirements and scopes of work as your current one, analyzes this data, and then makes an estimate based on what they discovered. This is also an agile project estimation technique, so you can review your estimates when new information becomes available and improve them throughout the project.
Among all project estimation techniques, analogy-based is probably the most basic. It won’t give you the most accurate estimates, but it is perfect when you know little about a project and just need to make a rough estimate.
Parametric estimation is an improved version of analogy-based estimation. Using this method, you also rely on your experience and past similar projects, but at the same time, you take into account the differences and specifics of the project you’re estimating. As a result, you get more accurate estimates than with the analogy-based method.
Three-point estimating is a great technique that helps you make realistic estimates. When calculating time and cost according to this method, your team provides three different values for each project task: optimistic (O), pessimistic (P), and most likely (ML) estimates. Then, they predict the result with the formula:
In this way, your team can assess different scenarios and mitigate risks if something unexpected comes up during development.
Another technique called PERT (program evaluation and review technique) is basically an improved version of the three-point method. According to PERT, you provide the same three types of estimates but use a different formula:
Why is the formula different for the PERT method? Three-point estimation assumes all three scenarios have an equal probability of occurring. PERT assumes that the most likely scenario has a higher probability of occurring than a positive or negative scenario. Therefore, it gives four times the weight to the most likely scenario relative to other scenarios.
The name of this method describes its essence: software development specialists assess a project individually and provide their estimates. This process is iterative, so after making estimates, experts discuss them and then estimate again until they find common ground. The experts involved in this process can be from your project team or can be external. For example, you can use CTO as a service to get estimates from a specialist with a solid technical background and unbiased opinion.
You probably won’t use this as your primary estimation method, but you can combine it with another technique. Expert judgment works well with various project management estimation techniques, including top-down, bottom-up, and parametric.
Use of AI in project estimation
One of the latest technologies in web development is artificial intelligence, and its use has affected estimation techniques in project management. Did you know that there are special AI tools that help you make estimates? They are data-driven and capable of making unbiased estimates based on initial information about your project and historical data on resources, timelines, and previous project costs.
For example, you can try Project Insights, Wrike, or Forecast. They will help you get rough estimates quickly. However, we still recommend involving your project team in the estimation process, as they know their capabilities the best.
Such AI project estimation tools work similarly to analogy-based and parametric types of estimating in project management. The key difference is they can give you faster and more accurate estimates. Moreover, using AI technology, such as implementing a large language model (LLM) in project management software, helps you to make the documenting process easy and fast.
You may wonder what technique you should choose for your project. Well, everything depends on how much information you have on your project and what approach to software development you use, so there is no one correct answer.
At Clockwise Software, we use three-point or PERT estimating, combining it with a bottom-up technique for making early estimates. Once we get enough information from a client on their project vision, we create a work breakdown structure and estimate each work package to understand how much time and how many resources we need for each task. We always involve our tech specialists in the estimating process so they can provide negative, positive, and most likely estimates based on their experience. In this way, we ensure that the client gets realistic initial estimates.
How to enhance your project estimation process
Even with many project estimation techniques in software engineering, making accurate estimates is difficult. You can miss something important or make an inaccurate software project time estimate that results in troubles during software development. And you probably want to avoid this scenario, don’t you?
Every expert has their own tips on how to improve project estimates, and we want to share ours with you. Here are our estimation recommendations:
- Break down the scope of work. Although you can make rough estimates after writing a project brief, you should prepare some other documents for your project that will help to improve your estimates. Start by creating a work breakdown structure (WBS). This document helps to show your app’s structure and breaks it down into features and specific tasks (so-called work packages) to develop each feature.
- Don’t set a budget before estimating the time and resources required. When you don’t know how much time and how many people you need for your project, it is almost impossible to make an accurate cost estimate. For example, if you choose software development outsourcing to Ukraine, you need to know the team rates, how many people will work on your project, and how long the project will take. Only after defining at least an approximate amount of time and resources can you calculate the cost.
- Taking into account all stages of development. There are a lot of cases when estimation teams forget to take into account crucial steps in software development (like testing in the Knight Capital example). Such mistakes can lead to poor software quality, missed deadlines, or budget overruns. So make sure you estimate the time, resources, and costs of all project activities, including design, development, testing, and deployment.
- Leave some space for future changes. No matter how much information you have and how thorough your estimation process, your project can change during its lifecycle. That’s why you always need to have a buffer over your baseline estimates. Most agile estimation techniques take changes into account, so you can use them to make realistic estimates.
- Let professionals help you. If you plan to develop in-house, make sure to involve your developers and other technical specialists in the software project estimation process. If you don’t have a development team or enough technical specialists with experience relevant to your project, consider the pros and cons of outsourcing software development — delegating your project to professionals can be an optimal solution. As SaaS software development experts, the Clockwise Software team can assist you with all development stages, from project planning, estimation, and requirements elicitation to development, testing, and deployment.
Software project estimation is an essential step in a traditional or SaaS product lifecycle. By thoroughly estimating the elements of your project, you can get a realistic perspective on the amount of effort and budget you need for your project.
To estimate a project, you can use top-down, bottom-up, analogy-based, three-point, and many other estimation techniques. Take into account the specifics of your estimating process (for example, the amount of information available and the software development methodology) to choose the most effective project management estimation techniques.
Also, don’t forget to involve your development team in the estimation process. Their opinion can help you make realistic estimates. If you’re planning to build software but don’t have an in-house team, we are ready to help you. Whether you need an MVP for startups or an app to integrate with your existing software, our team can build a product from scratch, covering all project-related tasks from planning and estimating to development, testing, and deployment.